SCENE 01: A WEALTH OF CONTENT https://www.cnbc.com/2019/11/13/disney-surpasses-10-million-sign-ups-since-launch.html https://techcrunch.com/2019/11/12/disney-says-its-working-to-quickly-resolve-its-launch-day-streaming-issues/ SEAN I'm not usually one to follow the crowd, but I couldn't help myself. Like 10 million other people, I signed up for Disney+ the day it launched. I was blown away by the whole experience. The sheer wealth of quality content available on the platform is amazing. It's got old nostalgic movies & shows I grew up watching like Escape from Witch Mountain, Darkwing Duck, and X-Men; newer releases like Avengers: Endgame, Rogue One, and Pixar movies and shorts like La Luna or For the Birds; and original shows like The Mandalorian and The World According to Jeff Goldblum with tons of additional content already scheduled to come out soon. And you get all this for 7 bucks a month. https://tradingeconomics.com/united-states/wages https://variety.com/2019/digital/news/disney-netflix-streaming-content-comparison-1203193967/ SEAN Another way to look at this is that Disney+ is giving you thousands of hours of top tier entertainment in exchange for about 18 minutes of work at the current Average Wage in America. This is gonna sound like a paid ad, and I promise you it's not, but this seems like an insane amount of value for less than the cost of a Burrito Supreme combo at Taco Bell. I know some people are overwhelmed by the idea of adding yet another service to Netflix, Hulu, Amazon Prime, and all the smaller streaming apps out there. But I'm still just amazed that when I was a kid, we literally had to rent a VCR along with two or three movies we could get on VHS from Blockbuster or Hollywood Video, and now just about anything I've ever seen or ever wanted to watch is available at the click of a button for almost nothing. And what's even more incredible is that none of this was the result of any kind of grand, coordinated political plan. So today, I want to talk about how we got here. Welcome to Out of Frame. SCENE 02: THE ENTERTAINMENT DARK AGES SEAN You can "Ok, Boomer" me if you want on this, but allow me to take you back to my childhood, when entertainment at home consisted of whatever happened to come on TV, scratchy bootlegged tapes, and rentals from the local video store that would amass late fees after 2 days. If your options weren't completely random, the selection was extremely limited and everything was brought to you in glorious Standard Definition, which is now basically the lowest resolution setting on YouTube. PHOTO: Sean's childhood home. SEAN Growing up in a rural area meant that we didn't have cable, so my TV broadcast options were PBS, Fox, ABC, NBC, and CBS, and depending on the weather, it was hit or miss whether or not they were even watchable. Enter Napster, Limewire, and Kazaa. SEAN That all changed with high speed internet. In the late 90s and early 2000s, we all ditched dial-up and got T1 lines. It wasn't fast enough to actually stream movies yet, but we were able to download movies. This was a big deal. For the first time in history, consumers had home entertainment options that weren't 100% controlled by studios and distribution companies, and we weren't limited to the couple hundred titles available at our local video store. Only, there was still a big problem. Long before iTunes, the alternative to going to rent a movie was blatant copyright violation and piracy. By the time I was a freshman in college, my generation had a choice make: Leave campus, drive to Blockbuster and rent a couple movies to watch in the dorms, risking expensive fees if we didn't make it back to the same location in 48 hours... Or we could just get on Kazaa and download dozens of movies and TV shows at once, for free, while we were attending classes. Setting aside the legal and moral ramifications of pirating movies, from a purely practical standpoint it was instantly clear to almost everyone I knew which option was better. Nearly 20 years ago, we could see the writing on the wall: Streaming media was the future. CLIP: Ben Affleck talks about the future of streaming movies. Show "2003" on screen. BEN AFFLECK "It will be like, if you want to watch it first weekend, maybe it won't be available first weekend, but then if you want to watch it, you'll pay more, and then as it goes to another stage in its release, it'll become less expensive. ...there's a lot more adoption that has to happen, technologically speaking, right now before people can... watch movies, or at least integrate it in terms of the PC-web connection. Technology isn't quite there yet, but it will be within, I would say, five years." SEAN Affleck was exactly right. Only, it wasn't the big studios that figured out how to deliver movies and TV shows right into people's homes. They dragged their feet, standing in the way of progress the same way they did when the VHS format first came out, worried that streaming movies was going to destroy their business. Instead, the astounding wealth of home entertainment options we have today are the result of entrepreneurial start-ups working totally outside the existing system. And with that, I bring you: A brief history of streaming entertainment. SCENE 03: A BRIEF HISTORY OF STREAMING, PART I https://www.topaccountingdegrees.org/netflix-vs-blockbuster/ https://qz.com/144372/a-brief-illustrated-history-of-blockbuster-which-is-closing-the-last-of-its-us-stores/ SEAN The year is 1997. B-ROLL: News footage of Deep Blue vs. Kasparov, Hong Kong, and the Titanic premiere. Maybe even Roger Ebert's review of Titanic. SEAN IBM's Deep Blue beats Garry Kasparov at chess, Hong Kong loses its relative independence to China, and Movie tickets cost about $5. B-ROLL: Blockbuster ads. SEAN Blockbuster dominates the rental video space, charging a dollar or two per movie, but tacking on substantial fees for returning movies late. As the story goes, $40 in late fees at Blockbuster annoyed Reed Hastings enough to start a new subscription-based company built around mail-order movie rentals with no late fees called Netflix. https://www.youtube.com/watch?v=CHU_F9hHkf8 SEAN Users went online and selected a list of movies they wanted to see and DVDs would get shipped directly to their homes. Back then, for $20 a month, Netflix subscribers could borrow up to four movies at a time, and whenever they sent one back, the next DVD in their Queue would show up in their mailbox. By 2000, Netflix was already nipping at Blockbuster's heels, but it wasn't without problems. https://financialhighway.com/tip-to-get-new-release-dvds-and-avoid-long-waits-with-netflix/ https://variety.com/2013/biz/news/epic-fail-how-blockbuster-could-have-owned-netflix-1200823443/ SEAN In those early years, their network of warehouses was pretty limited, so people didn't always get the next movie in their Queue as promised, and sometimes there were long delays - especially for new releases. It was also an expensive business model, and Netflix struggled financially. That same year, Reed Hastings approached Blockbuster CEO John Antioco with an offer to sell Netflix for $50 million. Antioco turned him down. Meanwhile, Blockbuster was busy charging their customers over $800 million in late fees. But here's the thing... Even though those late fees may have kept Blockbuster profitable in the early 2000s, they were also undermining the company's long-term future at the same time. Speaking as a customer, it always felt like Blockbuster was salivating at the chance to cash in, even if I returned a movie mere minutes past noon. In the end, by giving customers like me an unpleasant experience, Blockbuster was really just creating more and more opportunity for competition. Even before digital technology made the in-person rental business obsolete. But lets flash forward to 2002. Netflix' mail-order business is growing, and other entrepreneurs are starting to take notice. With the help of an investment from McDonald's, Gregg Kaplan creates an automated kiosk business branded as Ticktok Easy Shop selling a variety of retail products, groceries, and allowing people to rent DVDs for a dollar a day. The grocery side of the business didn't pan out, but Redbox Automated Retail worked pretty well. Incidentally, both Blockbuster and Netflix had the chance to buy Redbox. https://www.npr.org/templates/story/story.php?storyId=112339635?storyId=112339635 https://www.ibtimes.com/sad-end-blockbuster-video-onetime-5-billion-company-being-liquidated-competition-1496962 https://www.forbes.com/2010/05/18/blockbuster-netflix-coinstar-markets-bankruptcy-coinstar_slide.html#58914c9 SEAN Over the next several years, competition from Netflix and Redbox start to eat away at Blockbuster's profits and by 2005, the company had lost 75% of its market share. It's the beginning of the end. Remember Ben Affleck's 5-year prediction? It's just about to come true. But before I get to that, I want to add a little bit of economic context to the whole situation. SCENE 04: A QUICK ECONOMICS LESSON SEAN The first person to deeply explore the idea of entrepreneurship was an early 20th century Austrian economist named Joseph Schumpeter. Along with some of his contemporaries like Ludwig von Mises, Schumpeter studied law and political economy under Eugen von Böhm-Bawerk at the University of Vienna. He would go on to become Austria's Finance Minister from 1919 to 1921, and later became a professor at the University of Bonn in Germany from 1925 to 1932. When Hitler rose to power, Schumpeter immigrated to the United States and became a renowned professor of economics at Harvard University. Schumpeter saw the role of the entrepreneur in a market economy as central to innovation. In his 1942 book, "Capitalism, Socialism, and Democracy", he wrote: MOTION GRAPHIC: [Sean] SEAN "The function of entrepreneurs is to reform or revolutionize the pattern of production by exploiting an invention or, more generally, an untried technological possibility for producing a new commodity or producing an old one in a new way, by opening up a new source of supply of materials or a new outlet for products, by reorganizing an industry and so on." Perhaps even more famously, in that same book, Schumpeter also introduced the term "Creative Destruction" as a defining feature of free market economies. We see this in action with the story of streaming media. As new companies like Netflix create superior methods of bringing entertainment into people's homes, older companies like Blockbuster have to become more innovative themselves or be destroyed by their competition. This all can sound very cut-throat, but most of the time it happens fairly organically... It's an evolutionary process, not an executioner's axe. And more importantly, this process is how our standards of living continually increase over time. But there's another critical element to understand here. Again, in Schumpeter's words: "Success [in the market] depends on intuition, on seeing what afterwards proves true but cannot be established at the moment." The point is, people like Reed Hastings can't know if their innovations are actually going to pan out in advance. Nobody does. Not every new idea is a good one... and even a lot of the ideas that seem great aren't good enough to justify the cost. Plus, just because you or I like some product or service doesn't mean that anybody else does, so we need some effective way to tell which innovations are really valuable and which ones aren't. That's where markets and prices come in. We only find out whether or not some new development is really good or bad once it's offered to consumers who are free to choose what to buy or not. The entrepreneur is always going to think their idea is great, but as consumers, we're the ones who get to decide which businesses succeed and which fail. This is the biggest reason why trying to centrally plan an economy just doesn't work. Politicians and bureaucrats don't know what people are going to value, and they'll never know. So instead, they pick winners and losers based on what they want or what they think is going to earn them the most important allies. The freer a market, the more goods & services are an accurate reflection of what people want and don't want in society... The less free, the more it's a reflection of what a small handful of people in power want. Personally, I consider the fact that the internet and internet-based businesses have remained largely unregulated to be one of greatest strokes of luck in history. And that brings us back to Netflix. SCENE 05: A BRIEF HISTORY OF STREAMING, PART II SEAN By 2007, internet speeds and media encoding technology caught up with Reed Hasting's vision and Netflix became a fully-fledged streaming video service. This was right around the time I first signed up for Netflix and back then, they just offered streaming as a bonus to their mail-order customers. But it quickly split off into its own business. And that's the moment you see tons of other companies trying to catch up. Around the same time, Jeff Bezos had just launched a small movie-streaming app called Amazon Unbox, which later became Amazon Video on Demand but which at that point was still mostly an experiment. A year later, NBC Universal decided to put its big library of content into a new service called Hulu... But it didn't have a great interface and users still had to watch ads like live TV. Meanwhile, Netflix was busy crushing everybody in the home entertainment space. As of 2010, Netflix had what some of you might think of as a natural monopoly based solely on what's called "first mover advantage". It figured out the technology and user experience before anyone else, so for one hot second, it had no true competitors, and became a multi-billion dollar giant. By the way, that same year, Blockbuster - once the indisputable king of home video entertainment- filed for bankruptcy. At this point, I'm sure it sounds like Netflix "won" the streaming wars... But remember what I said in my episode about "The Boys". The idea that free markets inevitably lead to monopoly is a myth. Without government suppressing competition, Netflix had no way to maintain its temporary hold on the streaming market. Other companies caught up real fast. B-ROLL: Hulu shows. SEAN Hulu introduced Hulu Plus in 2010 with a substantial lineup of network TV shows and would go on to add other features over the next several years like live TV and bundled premium channels like HBO and Starz. B-ROLL: Amazon Prime Video. SEAN By 2011, Amazon rebranded its Video on Demand service to Amazon Instant Video, adding thousands of movies to its library through a deal with Epix and making those available to anyone who was already a Prime subscriber. A unique aspect of Amazon's service was that you could not only watch movies and TV shows as part of your subscription, but purchase the rights to include them in your own streaming library. B-ROLL: Show clips from House of Cards, Alpha House, Orange is the New Black, Transparent, etc. SEAN A short while later, Netflix and Amazon both announce that they're going to get into the business of producing original content exclusive to their platforms. B-ROLL: VUDU platform. SEAN Meanwhile, competing services like VUDU that allowed people to rent or buy movies and stream them at home and had been around for a while without much success were just starting to gain traction. https://techcrunch.com/2010/02/23/walmart-buys-vudu/ SEAN Again in 2010, VUDU got bought out by Walmart which was already battling to with Amazon in the broader retail market, but by 2014 had worked out deals with the digital locker systems UltraViolet and Disney Movies Anywhere - which meant that their library of streaming content was not only massive, it was also possible to pair digital downloads with the physical DVDs and now Blu-Rays that were already being sold in thousands of Walmart stores around the world. A restructured Blockbuster also launched a streaming service in 2011, but by that point it was really just too late. Consumers had spoken. Blockbuster got acquired by Dish Network, but the world moved on. CLIP: The Mandalorian KUILIL "I have spoken." B-ROLL: Other streaming platforms. SEAN By 2015, you have stuff like Shudder, Playstation Vue and SlingTV. By 2017 we got YouTube TV and Philo. By 2018, we started seeing more and more niche services like DC Universe, CBS All-Access, and AMC Watch Now. And now... We have Disney+. SCENE 06: MARKETS MAKE THIS POSSIBLE SEAN None of this came about by magic. And it's also not something that could have happened anywhere under any type of economic system. It's something that could only happen in a market economy. I say this because I want people to really grok how this works. With no central plan, no political decision making, and no legislative controls on what people had to do with their resources, enterprising individuals like Reed Hastings offered consumers a service that they believed would be valuable. And those consumers, like you and me, were (and are) free to choose whether or not to use that service. Nobody forced it on us. We weren't going to be sent to jail if we opted out or refused to pay. And as a result, our choices actually mean something. Fortunately for Netflix, we all responded positively. For an infinitesimal moment in time, they had what a lot of people might have thought of as a monopoly over streaming media. But again, without any kind of top-down control, anti-trust action, or restrictive regulations, that monopoly disappeared almost as soon as it formed. That's because in a free society, prices are a reflection of consumer's genuine preferences and when they choose to flock to one product or service and make it profitable, that signal ripples through the economy. When that happens, other entrepreneurs (and existing businesses) see the demand and have an incentive to innovate even more, offering their own competing goods & services. As long as they're able to do that without getting political approval or navigating major restrictions, this kind of open competition is what drives rapid innovation and development. And that's how we all end up with better living standards year after year. CLUSION SEAN Now we are awash in streaming content and the flood is unlikely to stop any time soon. And I get it, some people think this is going to create some kind of race to the bottom where companies push the price down, create poorer quality programming and we go back to a world where we're all paying hundreds of dollars for content split across tons of different apps. But I don't see it. The renaissance of incredible shows and movies that we've seen on cable and streaming services in the last few years has permanently altered audience expectations for quality content. And it's a direct consequence of having an open market for entertainment. If Netflix feels the pressure to compete with Disney+ by creating poorer quality original programming, they're going to have a bad time. And they know it. CLIP: Reed Hastings TED interview (13:34-ish) REED HASTINGS "When people talk about Netflix, they talk about the shows that move them. ... And so that is way disproportionate in positive impact, even for the subscriber growth you talked about, is those couple big memorable shows. But what we want to do is offer variety. You know, you don't want to watch the same thing every night, as much as you like it. You want to try different things. And what we haven't seen is this, say, race to the bottom of your violent pornography kind of examples. Instead, we've seen great viewing across a whole range - Black Mirror ... And with the distribution of On-Demand, you can make these much bigger shows." SEAN Mythology and catchy critical phrases aside, competitive markets almost never actually produce a "race to the bottom" in the products that they produce, in their cost to consumers, or even in terms of things like wages for employees. https://www.vox.com/2018/4/30/17301264/how-much-twitter-google-amazon-highest-paying-salary-tech SEAN Furthermore, let's try to keep all of this stuff in perspective. https://www.ssa.gov/OACT/COLA/awidevelop.html https://tradingeconomics.com/united-states/wages SEAN When I was a kid, a basic cable package cost around $30 a month. That was when the average wage in the US was about $8.00 an hour. So, back then, one month of spotty, limited cable cost almost 4 hours of labor for the average person. Much, much more if you wanted channels like HBO or ESPN. Adjusting for inflation from 1985 dollars to 2019 dollars, basic cable used to cost about $73 a month. The cost of a basic cable package without add-ons today is a heck of a lot lower than that, but it's still more than Netflix or Disney+. In fact, if you subscribed to every major streaming service at the same time, which I pretty much do, you'd still be paying way less money for a vastly superior product. And more importantly, the evolutionary process that brought us these kinds of improvements is still working just as hard as ever. B-ROLL: Clips of shows from various channels. Suggest: The Mandalorian, Stranger Things, Letterkenny, and Carnival Row. SEAN Disney+ is amazing. So is Netflix. And Hulu, and Amazon Prime. And they're all getting better and better. But it's also far from the end of the road. Include net neutrality visuals here? SEAN As long as politicians don't do something stupid and make it impossible for entrepreneurs to come up with new ways of delivering incredible entertainment to people's homes, the future looks really good. But right now? I've got some Gargoyles to watch. SEAN Hey everybody, thanks for watching this episode of Out of Frame. If you want to learn more about some of the entrepreneurship concepts we talked about on this episode, definitely check out our new series, "Revolution of \One". We've got a brand new YouTube channel set up for the show and if you like listening to inspiring, great advice for your life and your career definitely check out the link in the description. Also, if you love this series, please let us know how you feel by hitting that bell icon and participating in the conversation in the comments. And don't forget to subscribe to all of our social channels on YouTube, Facebook, Twitter, and Instagram. See you next time.